Performance Management Cycle: Step-by-Step Guide

Performance Management Cycle: Step-by-Step Guide

According to the McKinsey State of Organizations 2023 report, about 28% of employees believe that organizational objectives should be better wired into companies' existing performance management strategies. This misalignment of goals can negatively impact overall performance. 

The performance management cycle can help align objectives and improve performance. It's not just about evaluating employees. It's about nurturing, growing, and rewarding them. In this guide, we'll walk you through the four stages of the performance management cycle and show how Plai, leading performance management and HR software, can make this process efficient and engaging.

Step 1. Planning

Performance management cycle - planning stage
Image source: Freepik

The first stage of the performance management cycle is planning. During this step, as a part of the planning process, managers and employees cooperate to set goals and expectations for the upcoming year. The planning phase of the effective performance management cycle typically includes the following aspects:

1. Organizational goal setting

The planning phase begins with aligning individual goals with the company's broader mission and vision. This ensures employees' objectives coincide with the organization's strategic goals.

Objective: Align individual goals with the company’s vision and mission.

  • Key result 1: Set and revise “near-term” objectives every 3 months.
  • Key result 2: Ensure goals remain relevant.

2. Employee goal setting

The next aspect turns attention from organizational to employee objectives. These must be Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). The SMART approach ensures clarity and that people can achieve their goals. This is particularly important, considering about 40% of employees in the US think about changing their workplace in three to six months. 

Objective: Set SMART objectives for 50% of employees.

  • Key result 1: Have manager-employee one-on-ones every month.
  • Key result 2: Ensure employee objectives follow the company’s values. 

3. Creating a development plan

As a part of this aspect, identify the behaviors, skills, or knowledge an individual needs to develop to achieve their objectives and successfully uphold the company values.

Transparent communication and collaboration are essential at this point. According to Harvard Business Review, transparent communication is the bedrock of a thriving workplace culture. Employees should be informed of pertinent information, and regular feedback and honest discussion are encouraged.

Objective: Identify individual development needs.

  • Key result 1: Set transparent communication through monthly employee surveys and reviews.
  • Key result 2: Create individual development plans with timeline based on three surveys and reviews.

Step 2. Monitoring and developing

Performance management cycle - Monitoring and developing
Image source: Freepik

The second phase in the full performance assessment and management cycle focuses on monitoring and developing. A collaborative effort between managers and employees to track progress toward goals characterizes this stage. In addition, the step is about offering feedback and coaching to facilitate employee improvement. The monitoring and developing stage generally encompasses the following components:

1. Regular check-ins and feedback

This aspect involves maintaining open communication channels to ensure managers track employee progress and offer timely feedback. Regular check-ins and one-on-ones are critical to address any roadblocks preventing employee productivity.

These conversations should be ongoing to stay up-to-date with current goal progress and see whether one needs to adjust objectives. 

Objective: Maintain regular check-ins and feedback.

  • Key result 1: Weekly or bi-weekly sessions to track progress.
  • Key result 2: Adjust objectives as needed. 

2. Coaching and development opportunities

The next component revolves around coaching and development. In this context, managers provide resources and support to aid employee development. This includes discussing performance and overseeing goals.

Objective: Meet employee coaching and development needs.

  • Key result 1: Equip 50% of team leaders with development resources by Q2.
  • Key result 2:Increase overall team productivity through coaching by 10% by the end of the year. 

3. Adjusting goals and expectations as required

This aspect emphasizes the importance of flexibility and responsiveness to changes. It allows managers and employees to adjust goals according to existing shifts.

Constant monitoring should occur to make the required adjustments. Business metrics are often unpredictable, so adjusting goals to make them attainable and relevant when objectives change is essential.

Objective: Adjust goals for projects while focusing on flexibility.

  • Key result 1: Monitor and adjust one-third of ongoing projects within the quarter.
  • Key result 2: Achieve a 10% increase in project success visible during outcome-based evaluations. 

The monitoring and developing stage ensures that employees progress toward their goals and receive the necessary support and guidance. It promotes a culture of ongoing improvement and alignment of employee success with organizational objectives. This contributes to the overall success of the performance management cycle.

Stage 3. Reviewing and rating

Performance management cycle - Stage 3. Reviewing and rating
Image source: Freepik

The third stage of the performance management cycle is reviewing and rating. This stage is essential for evaluating performance and discussing strengths, weaknesses, and areas for improvement. It typically includes the following aspects:

1. Formal performance review

This involves evaluating achievements and areas for improvement. It's a once-a-year activity that aligns with the organization's strategic goals. The review assesses progress and develops people's knowledge, skills, and abilities. Remember that an effective performance review starts by addressing some common mistakes.

Objective: Conduct annual formal performance reviews for 100% of employees.

  • Key result 1: Provide leaders with resources for formal performance reviews and approve follow-up plans.
  • Key result 2: Align 60% of reviews with organizational goals by Q4. 

2. Discussion of performance strengths and weaknesses

Note that open and honest conversations are vital at this stage. Managers must provide frequent, effective feedback and use coaching skills to help team members overcome challenges and identify learning and performance improvement opportunities.

Objective: Discuss performance strengths and weaknesses with all team members.

  • Key result 1: Give 75% of employees constructive feedback by mid-year.
  • Key result 2: Identify learning opportunities for 50% of employees. 

3. Employee recognition

An effective performance management system should prioritize employee recognition and reward. Employees should feel valued and appreciated for their work and effort. Honest and regular feedback and reviews are needed, with more frequent and precise feedback leading to better individual performance.

Objective: Recognize high performance across all departments.

  • Key result 1: Recognize 80% of high performers through various means by Q2.
  • Key result 2: Implement a system to provide precise feedback to 90% of employees by Q3.

The reviewing and rating stage is not a linear process but a multifaceted cycle that may occur several times during the year. Managers should revisit it as business needs change. It's a complex field requiring careful navigation, continuous improvement, and alignment with the organization's strategic goals.

Stage 4. Rewarding

Performance management cycle - Stage 4. Rewarding
Image source: Freepik

The last stage of the performance management cycle is rewarding. During this stage, managers and employees work together to recognize and reward high performance and provide incentives for continued improvement. Remember for your reward program to be equitable to get the best results. Here's how the rewarding stage of performance management cycles typically unfolds:

1. Recognition and rewards for high performance

An effective performance management system prioritizes employee recognition and reward. Employees should feel valued for their work and effort. Recognition can be formal and informal, including public praise, certificates, or special mentions in company communications.

Objective: Reward high performance across all departments.

  • Key result 1: Initiate a 15% quarterly salary increase for high performance by Q1.
  • Key result 2: Organize success celebrations on a bi-monthly basis. 

2. Merit raises and promotions

Employees should understand how their performance aligns with organizational objectives and how it translates into financial incentives. Regular feedback and honest discussions can help in this regard. The system must be fair and accurate, considering the entire performance period. Equity in evaluations ensures every employee feels included and cared for.

Objective: Implement promotions for all eligible employees.

  • Key result 1: Organize promotions for 50% of eligible employees by Q1.
  • Key result 2: Increase fairness of evaluation by revising the existing review system. 

3. Incentives for continued improvement

Top performers often seek opportunities for skill development and advancement. Offering training opportunities and reinforcing performance expectations can be part of the incentives for continued growth.

Objective: Offer incentives for continued improvement.

  • Key result 1: Provide advanced training opportunities for 50% of high performers by Q2.
  • Key result 2: Allocate a budget for future training opportunities. 

The rewarding stage is not just about financial incentives. It encompasses recognition, development, and employee engagement. It's about creating a culture where employees feel appreciated, motivated, and aligned with the organization's goals. 

How can Plai help with the performance management cycle

Best performance management tool - Plai
Image Source: Plai.team

Plai is an all-in-one performance management software that can significantly assist organizations in implementing and streamlining the performance management cycle.

Here are some ways in which Plai can help with the performance management cycle:

  • Gathering feedback. Plai allows managers to quickly gather employee feedback, eliminating the need for cumbersome forms and sheets. Employees can quickly fill out surveys, making the process more efficient and engaging. Add information about AI-powered performance feedback summaries for managers.
  • Organizing review cycles. Plai helps organize and manage the review cycles, simplifying tracking and monitoring employee performance. This feature ensures that the performance management process is structured and well-coordinated.
  • Coaching and development. Plai provides tools and features that enable managers to provide coaching and development opportunities to employees. The platform helps in improving employee performance plans and supporting their professional growth.
  • Goal alignment. Plai helps align individual employee goals with organizational goals. It ensures that employees work towards objectives contributing to the organization's success.
  • Performance tracking. Plai allows for real-time monitoring and tracking of employee performance. This feature enables managers to have real-time visibility into employee progress and make timely adjustments as needed.
  • Recognition and rewards. Plai facilitates the recognition and reward of high-performing employees. The platform includes features such as merit raises, promotions, and incentives, which motivate employees to continue performing at their best.

Plai's comprehensive suite of tools transforms the performance management cycle, making it more accessible and practical for organizations of all sizes. From gathering insightful feedback through AI-powered summaries to aligning goals and recognizing achievements, Plai streamlines every stage of the process. 

The bottom line

The performance management cycle is essential but doesn't have to be complicated. With Plai, you can simplify the performance management cycle, plan the process, engage your team, and drive success. From planning to rewarding, Plai's all-in-one performance management software greatly assists organizations in implementing and streamlining the performance management cycle.

Ready to take your performance management to the next level? Sign up right away and get your journey started on the right foot.

Andrii Bas

Andrii Bas

Product Strategist, People & Performance

Founder of 3 products and product development agency @Uptech before 25. Use and consult about OKRs, performance management, and team leadership for 4+ years.

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